Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options

Abstract

This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extremestrike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.